Friday, December 31, 2010

Rust Belt Chic is alive and well. Explicit references to the cultural trend have been lacking. But the appreciation of the urban frontier and what it offers is evident on a daily basis. Via Phil Kidd, Detroit continues to be the center of Rust Belt Chic:

“Detroit is a blank canvas,” says Cooley, who traveled a lot before deciding to come back to do something “edgy” that derives in part from the experience of the family’s real estate business. “I thought I could be part of a community that needed growth and young energetic people who want to stay and create.” ...

... What makes this effort particularly notable is, of course, that it is in Detroit, better known for decay. “We are defined by our deficits, not our assets,” Mayor Dave Bing told the gathering. “We need young people with new ideas who think differently.”

Well, Detroit is getting them: energetic, talented and wanting to make a difference. In the 1990s, after the fall of the Berlin Wall, the 20s-30s generation flocked to vibrant Prague for excitement. Now they gravitate to New Orleans, Detroit and other cities where they can engage in something meaningful and make a real difference.

The draw of the urban frontier is bigger than Rust Belt Chic. Detroit offers a peculiar type of blank canvas. The landscape is emblematic of global economic upheaval and transformation. The scale of blight and abandonment is massive, overwhelming. There is too much frontier.

Regions waste a lot of time and resources worrying about who moves away from the community. You shouldn't expect the best and brightest to stay whether you live in Michigan or Texas. The context is irrelevant. Smart people leave.

Tina Choudhri, a medical resident in Washington, D.C., said she felt it was expected that graduates would leave Saginaw for college and careers. Choudhri completed her undergraduate studies at John Carroll University in University Heights, Ohio, and went to medical school at the University of Cincinnati College of Medicine. She said she has no plans to head back north anytime soon.

“Family would be the biggest draw to come back, but there are just more jobs, more opportunities elsewhere,” she said.

The Saginaw Valley Young Professionals Network, organized through the Saginaw County Chamber of Commerce, is working to combat brain drain by helping young professionals get involved and make connections that benefit their careers.

Family exerts a powerful pull on talent. Instead, Saginaw focuses on restricting geographic mobility. It's like encouraging young adults to drop out of high school. Be poor and stuck in Michigan. Why not network expatriates such as Tina Choudhri?

When we discuss the population numbers, we emphasize outmigration. We don't consider natural decline, replacement rates, or immigration. Policymakers are woefully, sometimes willfully, ignorant of demography. Year-after-year, we try the same retention initiatives. We replicate failure. We undermine prosperity.

Why not network expatriates such as Tina Choudhri? The Saginaw County Chamber of Commerce could do it. Talk about making connections that would benefit careers, there is nothing more empowering than introducing young professionals to successful expatriates. Develop people, not places.

Thursday, December 30, 2010

“The good people are the ones who flee first because they can go, they have talent, they have enough in the way of resources, and they have possibility of finding a job someplace else,” says Mr. Myers. “It’s the people who are least skilled and who are least educated who have to hang around. They can’t sell their house, they’re just stuck.”

Of particular concern is the possibility that the most economically vulnerable U.S. families might be unable to respond to local economic downturns by moving away. Figure 2 shows geographic mobility rates among a national representative sample of people displaced from a job at any point during the period from 2005 to 2008. Specifically, the figure displays the proportion of respondents who have moved to a different city or county as of January 2008. We break out these mobility rates by people’s educational attainment, which economists consider to be one of the best indicators of someone’s lifetime earnings prospects. The figure shows that around 16 percent of college-educated people who had lost a job had moved at some point following displacement compared to just 10 percent among high school dropouts and 11 percent among high school graduates.

Leaving economically distressed areas is good for household prosperity. Yet we set policy to tether the most vulnerable to one place. Discouraging geographic mobility is a bizarre practice. Initiatives designed to retain talent are akin lowering regional educational attainment rates. Plugging the brain drain erodes household wealth.

Brain gain is defined as a city’s or country’s attraction of talented people whose exceptional gifts and knowledge create new business and new jobs and increase that city’s or country’s economy. To some degree, all cities of all sizes, everywhere in the world, have a success story of brain gain. Someone had a good idea, and its implementation created new jobs in that town. Brain gain is the big-bang theory of economic development. The challenge leaders face is how to trigger brain gain in their cities.

It’s a new challenge, but an old issue. Twenty-five years ago, virtually every economist, liberal and conservative, forecast that the GDP of the United States would lose its first-place ranking and drop to third. News shows, newspapers, and business magazines predicted that Japan’s GDP would be around $5 trillion, Germany’s would be around $4 trillion, and the United States would fall to third at about $3.5 trillion by 2007.

The economists were partly right. Japan is at about $4.5 trillion and Germany’s at about $4 trillion, too. But they couldn’t have been more wrong about the United States. The country’s GDP didn’t fall. Over the last 25 years, it grew to $13 trillion. The best economists in the world were off by more than $10 trillion.

As for stories nobody wants to tell: steel and its attendant industries would crash in the 1980s, creating a swath of unemployment and desperation in what became known as The Rust Belt. Today, obsolete industrial centers like Ambridge and Akron, Toledo and Allentown, fall into the sad category of predecessors like Lowell and Waterbury, Worcester and Fall River. For those of us who grew up there, the stories stick in our throats.

Surrounded as I was by silent immigrants and wildly exploited landscape, I knew nothing of how this place, its people and resources had made a real difference in America. Few artists or writers emerged from the ranks of steelworkers. We left our portrayal up to outsiders, observers, photographers from the Works Progress Administration, industrial and union newsreel shooters, journalists from national newspapers who coined descriptions of Pittsburgh as “hell with the lid off.” Every depiction, from the mythical steelworker, Joe Magarac, to The Deerhunter, is shot through the same lens, portraying blue-collar stereotypes with detached, sympathetic reverence, usually in as simple terms as possible. Novelists and filmmakers came to blue-collar towns like Ambridge looking for characters, but, with few exceptions, warped them into caricatures.

Emphasis added. There does seem to be a void where Rust Belt art should be. I think that is changing, rapidly. The generation that grew up in the Industrial Heartland without working in the mill is giving the region voice. You don't have to be a steelworker to create characters instead of caricatures.

Furthermore, the Rust Belt is transforming into something less pejorative. The landscape is cool and hip, authentic. The dense gritty neighborhoods are desirable. Places such as Pittsburgh appeal the urbanity of Generation Y. These people want to read the stories that Paul Hertneky and others feel compelled to write.

Known as the “Steel City,” Pittsburgh was once the forge for the American industrial engine from the late 1800′s through the late 1970′s. At its peak, the city was home to more than 1,000 factories, including the mills owned by Pittsburgh-based U.S. Steel, which by itself employed over 340,000 workers during World War II. As the American steel industry collapsed in the 19 80′s Pittsburgh suffered severe unemployment problems. In the past few decades, the city changed to a technology-based economy, but the population is still on the decline. Since 1950, Pittsburgh’s population has declined by more than 50%.

Housing regulations, more than those that bind standard businesses, explain the Sun Belt’s population growth. If New York and Massachusetts want to stop losing Congressional seats, then they must revisit the rules that make it so difficult to build. High prices show that the demand would be there if the supply is unleashed.

I suspect Glaeser is being flip. Lax regulations built a house of cards in cities such as Las Vegas. I doubt such an approach would work in the economy that is emerging from the Great Recession. What matters most are the places where talent can best be developed. That hasn't shown up well in the aggregate population numbers, which is why Pittsburgh is still on a list of losers.

Across the country, construction employment remained steady or increased in 120 of 337 metropolitan areas between the Novembers of 2009 and 2010.

“It is good to see the construction industry finishing the year on a relatively positive note,” said Ken Simonson, AGCA’s chief economist. “But even if the industry is no longer on the brink, it is still a long way from recovering.”

The period covered in that early fall story is August 2009 to August 2010. Three months later, Pittsburgh is still looking like the place to be for growth. If you are looking for a construction job, then you should move to Southwestern Pennsylvania.

The Census results announced last week confirmed what we have known for at least a decade. The gravity of population is shifting from the Rust Belt to the Sun Belt. To the extent that migration explains this "new" landscape has set off another round of blaming taxes for brain drain.

And, with apologies to Charlie Rangel, it's not just the weather: "The states that gained seats ranked an average of 39th in taxes and had an average tax burden (weighted) of $1,788 -- 27 percent lower than the losing states. People vote with their feet and flee to low-tax states. It's not the climate; it's the taxes."

In the past decade, NY State has lost a million people-with the largest losses occurring upstate where job prospects are dim. John Faso underscores this bleak picture: "Many New Yorkers have no choice but to flee our confiscatory taxes and dismal job climate. Can our policymakers turn things around?..But the greater challenge will be crafting policies that fundamentally change our long-term economic prospects. The state needs to radically alter prevailing assumptions that have governed New York state for the last half century if it is emerge from this recession with brighter prospects."

Places renown for developing people will always do well. It isn't fad or fetish driving prosperity. People will endure crime, high taxes, and a lousy built environment to better themselves. They will even tolerate a crappy climate and a long commute to work.

I'm amazed how something so obvious gets lost so easily in any policy debate. Like amenities, tax regime is a small residual migration. A few people care a lot about these issues. The squeaky wheel gets the grease. Much ado about nothing.

Increasing geographic mobility is one way to develop talent. However, migration can be disruptive. Rootlessness erodes social capital. Neighborhoods with too much churn often look dilapidated. The community suffers.

Jim Russell, a geographer, consultant and proprietor of the blog Burgh Diaspora, notes that a goal of federal policies designed to increase homeownership was to get people rooted in their communities, to have a stake in the future of their neighborhoods.

And although federal housing policies centered on homeownership may have contributed to the current mess by encouraging the bubble, the end result may indeed be a new rooted-Ness, at least in Las Vegas.

I've taken the firm stance that any policy designed to discourage geographic mobility (e.g. talent retention) is bad for economic development. I'm ignoring the discourse about social capital. I'm aware of the issue. I live in a neighborhood that struggles with rental residences. When my wife and I bought the house, many people asked if we were renting or owning. They wanted to know if we would stick around and take pride in our property.

At the federal, state and local level, we tend to incentivize staying in place. This legacy frames the discussion about brain drain. In my estimation, the gains in social capital fall well short of benefits for economic development. Decreasing geographic mobility is a drag on prosperity. And rootedness isn't the only way to build social capital.

Robust inmigration and substantial churn are challenging for any community. Necessity is the mother of invention. We deal well with an influx of newcomers. We fail miserably to manage the outflow of natives. Lots of people are leaving Las Vegas. What's the upside?

Thursday, December 23, 2010

Last week, the Bank of Canada held steady on interest rates, leaving the overnight rate at one per cent. While the U.S. economy is revving up again, Canada has lagged. In the third quarter, GDP growth fell to one per cent, half the rate seen in the second quarter. Despite seeing an increase in exports to China, the U.S. is still the destination for nearly 75 per cent of Canada’s exports, so a strong rebound in that economy will help us immensely. At the same time, fears over the U.S. economy helped drive down the value of the greenback, hurting manufacturers here whose goods, priced in soaring Canadian dollars, have become more expensive. As things improve south of the border, that should take some of the air out of the loonie and lift trade.

Canada also stands to benefit from the recent compromise between President Barack Obama and Republican legislators to extend Bush-era tax cuts and unemployment benefits. As a result, economists at the Bank of Montreal now expect Canada’s economy to grow 2.7 per cent, up from 2.4 per cent. “The compromise stimulus deal is a welcome boost for the U.S. economy, household and business confidence, and, by extension, Canadian trade,” Sherry Cooper, BMO’s chief economist, wrote in a report.

The view from Canada is a lot like the outsider perspective on Pittsburgh. There's no reason to be overly optimistic or pessimistic. The assessment isn't coming from boosters or cranks. And no, I'm not concerned that the United States will become complacent as a result of the rosy forecast.

Wednesday, December 22, 2010

I wouldn't call it an information economy or even post-industrial. The sun now setting on the last 40-years is leaving the migration economy in the dark. The decline of the United States from its hegemonic perch, particularly over the last decade, mirrors that of decreasing geographic mobility. More distressing is the glut of college graduates:

Over the past several decades, higher educational attainment (i.e., the percentage of the adult population with at least a bachelor’s degree) has seen a dramatic rise in the United States as college graduates have become “ever more prevalent” (Dohm and Wyatt 2002) in the American workforce. As Figure 1 shows, in 1960, only 7.7% of American adults over the age of 25 possessed college degrees. This proportion has increased in every year since 1960 for which data is available, with the exception of both 1992 and 2005, and by 2008, 29.4% of Americans 25 years of age and older held college degrees.

With higher educational attainment comes greater geographic mobility. The downward trend in interstate migration is more troubling than meets the eye. We should be seeing more moves, not less. The demise of the migration economy is deeper than the Great Recession.

A Hong Kong developer has blasted the once scenic Henderson mountains to create luxury home sites, although there’s no building going on, and the developer says there are no immediate plans to begin selling lots.

Fielden likens it to an empty mining camp.

“It’s just a shame. Ruined those beautiful mountains,” he says. “Puts tears in my eyes.”

Fielden’s metaphor, the mining camp, is more than visual.

He’s also conveying the consequences of the boom and bust for the entire valley: Once the mine has been depleted, and the company takes its money and packs up and leaves, the scarred landscape is forever changed. In the same manner, although the building boom is finished and the developers have mostly departed or gone bust, they left behind a landscape that will define our city for decades.

I've seen the real estate boom and bust cycle in the Greater Denver area. The recession of the early 1990s brought to a grinding halt a number of developments between Denver and Boulder, along US 36. It was a haunting and demoralizing drive between the two cities, particularly in winter. The regional economy recovered. Projects were completed and the land filled with residential buildings, office parks, and even a mall. That was yesterday's economy. Las Vegas and other migration boomtowns won't be saved by such a reprise.

How about Google? I wrote: "Pittsburgh will emerge as an East Coast hub for Google, which will hire more staff and occupy more space in East Liberty/ Larimer than it currently forecasts." I was right on with that one.

The biggest story about Google this year concerns the scarcity of talent. If less college educated people are moving across state lines, that's a problem. You can't expect to hole up in Mountain View and let everyone come to you. The death of the migration economy demands a new strategy, one that is very different from what Richard Florida prescribes. The game of musical chairs for the Creative Class is over. Wishing that your region found a seat.

But while clusters have historically evolved organically as entrepreneurs look to take advantage of natural resources, transportation infrastructure, highly trained workforces, and know-how, said [Michael] Wright, the new science, if that’s the right term, within this field of economic development involves facilitating and accelerating that process. And that’s now his official job description as manager of Cluster Development for the Economic Development Council of Western Mass. (EDC).

Wright, who most recently served as managing director of the Mass. Center for renewable Energy Science and Technology at UMass, started in this newly created post in August. He’s spent the past four months familiarizing himself with all aspects of the region’s business economy, identifying clusters and potential clusters, and laying some track for the process of creating and strengthening connections. ...

... When asked about the process of cluster-development efforts, the science of speeding up the process, and what could happen here, Wright cited the example of Ottawa, the Canadian capital. There, a cluster of photonics companies — ventures involved in the science and technology of light — has developed and now includes several hundred companies.

Greater Springfield and areas just south and east of it have about 50 companies in this same field, employing roughly 5,000 people. “This includes some companies just over the line in Connecticut, and others in the Sturbridge area and Worcester County,” Wright explained, “and the mix of companies is quite diverse.

“Ottawa’s cluster is much larger, and I’m not really sure why; I don’t know the history,” he continued. “But typically, you’ll find that there are a number of entrepreneurs and academicians who have, over the years, collaborated and created an open environment, allowing for the entrance of new companies, rather than hoarding information and keeping things close to the vest.”

Pittsburgh, a city that knew it had to diversify after its base in the steel industry shrank considerably, has had similar success with several clusters, including those in digital technology, biosciences, and advanced manufacturing technology, said Wright, noting that cluster-development efforts there have been ongoing for roughly 40 years.

“Pittsburgh is now quite diverse, and each of these clusters has hundreds of companies,” he explained, adding that the Pittsburgh Technology Council has spawned a number of vertical clusters in each of those areas he mentioned. “It’s like a Knowledge Corridor there in some respects; from the research universities down to the community colleges, they’ve figured out how their higher-education system can integrate into these clusters quite well.”

Once again, Pittsburgh is held up as an example of best practice. "Yes, but ...", start the naysayers. Is Wright a fool to celebrate Pittsburgh?

Experts in the know will always find something lacking. Goading the region to do better is a worthwhile goal. But from where I sit, Pittsburgh's rise from the ashes of the early 1980s is nothing less than remarkable.

From the southern region of the Midwest (see Southern Ohio, Northern Kentucky, Western Pennsylvania and the better part of West Virginia). Hilljacks have a penchant for sleeveless t-shirts, Blackfoot and Molly Hatchet and low-end regional beer. Family gatherings come in the form of cookouts and all of them culminate in drunken brawls and multiple arrests. Young hilljack chicks are usually very attractive but undergo a metamorphosis sometime after they have their third kid before the age of twenty.

McIlrath inherits a long tradition of Midwestern writing, some of it among the monuments of American literature, which have helped define this region and this country. Some of this is city-based -- Richard Wright and Saul Bellow, for instance. But much has come from the small towns and farms of the Midwest -- Winesburg and Gopher Prairie and Spoon River -- obscure places that have become everybody's home town. Some of this is by expats looking back in anger or despair (e.g., Sinclair Lewis), some by people who never left, either in fact or psychologically (Marilynne Robinson, Kathleen Norris).

That tradition doesn't resonate with hilljacks. Mining among contemporary writers, Bobbie Ann Mason strikes me as a good place to start looking for a definition of Rust Belt literature. It stretches the cultural influence to the west, but I'd bet other people from Western Pennsylvania would appreciate Mason's books.

There's a third cultural region in the Midwest, the Great Lakes. This area is different from Longworth's Midwest (Rust Belt Prairie?). No writer immediately jumps into my mind. Instead, I imagine painters such as Charles Burchfield and Tom Thomson. The unifying landscape theme is what musician Glenn Gould called, "The Idea of North". If you grew up near the Canadian border, you know what I mean.

In a wide-ranging interview Monday, the Democratic leader, who will leave office on Jan. 9, also said that he did a lot for Cleveland but never got the support he deserved from Northeast Ohio leaders and local media, who he says thought of him as a country bumpkin who never understood the big city.

"Maybe it is because I'm from Appalachia," the Scioto County-born Strickland told The Plain Dealer. "I think they always considered me a hayseed, someone who couldn't possibly understand or be sophisticated enough to understand what life is like in the city."

Soon-to-be former Governor Strickland, you see, is a hilljack. He could get along fine in Pittsburgh, but not in Great Lakes Cleveland. That's the problem with Cleveburgh (aka TechBelt). Rust Belt culture stops just shy of Cleveland city limits. Akron is a world a way, a lot closer to Pittsburgh than Cleveland. Until the hilljacks can take power in Cleveland, that city is doomed.

Monday, December 20, 2010

Mike Bryson left Pittsburgh when the steel industry collapsed, heading south for greener pastures in the form of Maryland’s electronics and computer industry. He found a job there but returned when it ended, and has been out of work since August 2009.

Bryson has experience and education — he recently attended a technical training center and has many computer certifications — but the 60-year-old believes his age has made it more difficult to find a job. He’s sent out hundreds of resumes.

Bryson was homeless and lived in his car for a while before finding the McKees Rocks Employment and Training Center, where he now works about 20 hours a week, making minimum wage and, ironically, helping other people improve their resumes and find work.

How many expatriates have returned to Pittsburgh in search of work? Enough to impact the regional unemployment picture?

Sunday, December 19, 2010

The Utica Shale could become more important to the state than the Marcellus Shale, said Robert Watson, associate professor emeritus of natural gas engineering and geo-environmental engineering at Penn State.

That is because it has the potential to be commercially viable in counties in the northwestern portion of the state that are starving for economic development - places such as Venango, Butler, Mercer and Erie counties.

Those counties once had manufacturing-based economies, already have a tradition of oil and gas development and are outside the developable area of the Marcellus Shale, Watson said.

"These counties that have suffered as rust belt counties will welcome the presence of high paying jobs and the development of unconventional shale resources," Watson said.

That puts Pittsburgh at the center of all the action. That's important to remember while chewing on all the rhetoric coming from the Marcellus Shale Coalition about the drilling ban in the city. To date, the MSC PR strategy is to make threats that make little economic sense. The bluster doesn't pass the sniff test and erodes the industry's credibility.

In essence, they arrive at the sensible conclusion that cities are valuable because they facilitate human interactions, as people crammed into a few square miles exchange ideas and start collaborations. “If you ask people why they move to the city, they always give the same reasons,” West says. “They’ve come to get a job or follow their friends or to be at the center of a scene. That’s why we pay the high rent. Cities are all about the people, not the infrastructure.”

Moving to a city often entails a lower quality of life. Yet people still come. It boils down to the economic development of people, not place. Even if your hometown offers everything you require to prosper, there is still value in leaving. The risk of relocation is the hallmark of an entrepreneur.

In fact, I'd argue that leaving is more important than the destination. You'll end up with a network of people who have done the same thing. You surround yourself with like-minded risk-takers. You go to the city to find that kind of community. You don't move there for a more walkable neighborhood. That's absurd.

The local effects of the downward drift of manufacturing jobs can be seen with great clarity by comparing the performance of the Great Lakes major metro areas in juxtaposition with their own historic concentration in manufacturing. Eleven major metropolitan areas are charted in [Figure 4], running east to west from Buffalo and Pittsburgh to St. Louis and Minneapolis. A strong inverse correlation is evident in observing each MSA’s share of payroll employment in the manufacturing sector in 1969 as compared to subsequent growth in total job growth to 2006. Those metropolitan areas having the highest manufacturing job concentration in 1969—such as Detroit, Buffalo, and Pittsburgh, subsequently experienced the worst total job growth. A similar relationship exists between growth in each MSA’s per capita income growth. For Great Lakes communities, manufacturing has been destiny.

Often, much is made of the variance of policy geography (e.g. right-to-work states). The more important issue is dependence on manufacturing. When you look at the Rust Belt's strongest performers (i.e. Indianapolis, Columbus, and Minneapolis), you could have placed a bet in 1969 on the regions with the smallest share of manufacturing jobs and made millions. As an aside, St. Louis and Indianapolis chimed with about the same share but there is a large difference in job growth between the two cities. That would be an interesting case study of diverging fortunes.

I think of Pittsburgh and other Rust Belt cities trying to get where Minneapolis and Columbus were in 1969. That means trading manufacturing jobs for ones in other sectors of the economy. It also demands a substantial improvement in rates of educational attainment. All of the above is tough to do with so much public debt and a decaying infrastructure. The deck is stacked against these regions.

Friday, December 17, 2010

The Chicken Littles of brain drain are at it again. In today's Boston Globe, the one that got away is Facebook's Mark Zuckerberg. The point is that Boston is no Silicon Valley and that talent has to leave. The story ends with a silver lining. The startup scene in Beantown is coming of age.

What happens is that Penn and the City of Philadelphia together use federal urban renewal as a tool to bulldoze a big piece of West Philadelphia and build the University City Science Center. In the Valley, [where there is more space] you didn’t have to worry about getting rid of buildings, or getting rid of people.

How can Rust Belt brownfields possibly compete with the greenfields of Silicon Valley? O'Mara ends the interview with her own silver lining:

One of the interesting things about Philadelphia, then and now, there’s a core group of thinkers who see Philadelphia as a vital urban place. One thing that was notable about University City initiative, it was trying to revision this new economy — a community of educated people — strongly assocated with this super suburban Silicon Valley model. They were trying to market University City as this cool urban neighborhood, celebrating the vitality and diversity of the city, like Jane Jacobs. Now, when you look at West Philadelphia, it’s an idea whose time has come.

Bryan Dunn, a high school classmate of Mason's in Mount Lebanon, Pa., a suburb of Pittsburgh, remembers Mason as intelligent and perfectly content to march to the beat of his own drum. "Probably the best word to say was he was unique," Dunn said. "He probably didn't care too much about what people thought. He did his own thing."

When Mason attended his 10-year high school reunion last year, Dunn found him to be largely as he remembered. "He has a great sense of humor if you can appreciate it," Dunn said. "It's very dry. The things he's saying now, it's the same sense of humor he had."

Today, that sense of humor has morphed into helping cook up what can seem like frat-boy high jinks within the walls of Groupon's headquarters in the former Montgomery Ward catalog building in Chicago. Some have been his creation; others were dreamed up by co-workers and those are the ones Mason likes best, he says, because it shows his sense of nonsense has become ingrained in the corporate culture.

The Groupon playground is Rust Belt Chic, an old and cool building that has been reinvented. The latest:

Groupon also is negotiating for additional 13,000 square feet in the sprawling, eight-story former Ward’s complex, which hugs the North Branch of the Chicago River, the spokesman says. The 1.56-million-square-foot property has become a hotbed for Internet and technology firms in recent years and is now 97.5% leased, according to real estate data provider CoStar Group Inc.

A stronger explanation for the social multiplier that exists between education and unemployment is the power of “Human Capital Spillovers,” which is econ-speak for the benefits of having well-educated neighbors.

In 1993, James Rauch wrote a seminal paper showing that holding individual education constant, wages rise with the skills of metropolitan areas. Enrico Moretti has taken over this topic and written sophisticated papers that look both across metropolitan areas and within firms, showing that supermarket workers get more productive when better workers are in their shift.

For decades, the suburbs benefited from companies seeking lower rent, less crime and a shorter commute for many workers. But now, office buildings in many city downtowns have stopped losing tenants or are filling up again even as the office space in the surrounding suburbs continues to empty, a challenge to the post-war trend in the American workplace and a sign of the economic recovery's uneven geography.

The talent density dividend concerns the workplace, not residences. Thus the army of urbanists advocating for cooler cities are overlooking a dramatic shift in economic geography. That's not to say that workers won't follow jobs back into the city. Just that the suggested policy agenda is misaligned with what is happening on the ground.

If you want to attract more college educated people to your region, then do a better job of clustering where they work. Redding up downtown is a losing proposition. Increasing residential density will save the municipality money, but it won't spark an economic turnaround. More vibrant neighborhoods will not better develop human capital. Shelling out millions for transportation won't increase educational attainment rates. If you build it, I doubt they will come.

The billions spent on talent attraction and retention are going right down the brain drain. It's a colossal waste. How many more cool city initiatives are we willing to endure?

Thursday, December 09, 2010

Retaining talent shouldn't be a goal. I'd even go so far as to assert that efforts to attract talent are misguided. Then how can a region increase educational attainments rates and prosperity? Develop talent:

Communities should worry less about “brain drain” and worry more about building the capacity for talent development. Communities should worry less about company incentives for job creation and more about investments in education and workforce development. Differentiate your community by its commitment to talent development. Don’t worry if talented people move on to explore opportunities in other communities. Encourage it. Stay focused on making your community the best it can be at helping it’s citizens be the best they can be. Talent development is the best economic development.

I figure the debate boils down to place-centric economic development (e.g. CEOs for Cities) versus talent-centric economic development. The former is better established and more palatable to the risk averse. However, a city that develops talent doesn't need to worry about being cool or hip.

Governor-elect Snyder was right on when he wrote in his ten point plan that “many of Michigan’s youth are looking for an appealing metropolitan community – and many are moving out of state to find it”. As is the plan’s list of place attributes that are needed to compete for mobile young talent: safe/walkable urban neighborhoods with vibrant third places, transit, parks/outdoor recreation and the arts.

The Millennials, more than any previous generation, are concentrating in big metropolitan areas anchored by vibrant central cities. For Michigan to prosper it’s central cities – particularly Detroit – must be places where young mobile talent wants to live and work.

Through fundamental policy change the Snyder Administration can help create that quality of place. It largely requires changing the direction of three state agencies.

Ugh. So much for Michigan's comeback. Detroit and other cities must be places where talent can develop. That's why so many people move to New York City and cram into a shit hole apartment with 10 other slackers in a lousy part of town so they can work for peanuts. It isn't for the walkable neighborhoods. If you want to be the best, you go to New York City. Now tell me why anyone should move to Detroit. For quality of place? No one would believe it even if it were true.

Pittsburgh's revitalization can be explained as the shedding of manufacturing jobs and the diversification of the regional economy. However, the industrial era in Southwestern Pennsylvania isn't over. Like its urban heart, this sector has changed with times:

The secret to Butler County's manufacturing success is not only a willingness to adapt but also the presence of an industrial ecosystem of sorts: a local network of companies and resources that help one another survive. At its core is AK Steel, which stayed in business while countless other steel mills in the Rust Belt succumbed to foreign competition. As a result, smaller businesses--such as Wise--that build parts and perform repairs for AK Steel have also survived. These companies are hothouses of innovation, spawning entrepreneurs who spin off to form their own firms. This, in turn, has preserved a skilled, local workforce.

If you thought Pittsburgh is just an eds and meds town, then you are wrong. Whether you are looking at Allegheny County or the entire metro (if not the whole state), you overlook Butler County. The region tends to defy assessment from on high. Certainly, the recent report from Brookings is ignorant of this geography. You won't find Butler County in the conclusion celebrating manufacturing and exports.

Butler County's economy has long depended on making steel and fashioning it into precision tools, industries that most Americans think have largely fled overseas. To survive, companies here have successfully adapted, using flexible manufacturing techniques that marry computers with a skilled workforce to craft products for international markets. And in the wake of the worst economic downturn since the Great Depression, the unemployment rate in Butler County stood at just 6.8 percent in September, far lower than the national average. (emphasis added)

A big part of that impressive statistic includes county residents who commute into Pittsburgh for those eds and meds jobs (among others). There is also plenty of work to be found throughout Butler County, such as at Westinghouse. Fayette County, also part of the Pittsburgh region, recently reported unemployment at 10%. This reminds me of the Rust Belt. The negative brand applies equally everywhere, regardless of the conditions within the community. Detroit is no different than Ann Arbor.

I appreciate the value of comparing apples to apples. And we can cherry pick success stories in any region. But there's something wrong when the analysis overlooks the likes of Butler County.

Repopulating all of Detroit is an impossible task. More practical is packing people into a few strategic spots, a bunch of small cities within city limits. Achieving that goal is another story:

Detroit Mayor Dave Bing wants to cluster city residents into about two-thirds of the city's current space and will give people incentives to move, he says.

No resident would be forced to move, but people should know that the seven to nine core neighborhoods, which the administration will identify by spring, will be the only parts of the city that have full city services, Bing told the Detroit Free Press.

The plan is to make key neighborhoods more attractive. Plenty of experts claim to know how to engineer migration, running the gamut from retention to talent attraction. The truth is that no one has a silver bullet. I'm not sure anyone has an idea worth a few dollars.

My guess is that Mayor Bing is omitting the part of the narrative that outlines the neighborhoods left for dead. There will be more push than pull concerning relocation. The areas of core investment will attract the most mobile, who tend to be the best educated. I expect many of them will come from outside the city. That's not all bad, unless you are stuck in part of town on the wrong side of the tracks.

But the truth is corporate America is tiring of the suburbs and returning to downtown like so many empty nesters—or hipsters, since many companies cite attracting top young talent as a factor in their decision to set up shop downtown. In Seattle, Microsoft and Expedia are on the move. In Atlanta it’s AT&T, and Target in Minneapolis. Meanwhile, Quicken Loans has just moved 1,700 employees into downtown Detroit. Yes, Detroit... (Blue Cross Blue Shield is scheduled to add 3,000 more in 2011.)

Some of these companies are moving into old buildings—Adidas’ and Amazon’s new HQs, for instance, are both housed in old hospitals. Others are building new HQs on reclaimed brownfields. American Eagle’s new Pittsburgh offices are where a steel mill once stood, while Pixar’s new digs went up on the site of an old Del Monte cannery. “What we really wanted was to find a big, old brick building and rehabilitate it, but we couldn’t, so we built it instead,” said then CEO Steve Jobs.

That second paragraph demonstrates the pull of Rust Belt Chic and the importance college degree density in terms of job location. Talent reverse commuting to suburban office parks ringing the city makes the residential density gains moot. Why should we care where the brains live?

That's something that regions with relatively low educational attainment rates should ponder. If talent is scarce, then you best concentrate jobs. That's easier to do in Rust Belt cities where prime real estate is cheap. The so-called "creative economy" favors these regions that talent is supposed to be fleeing.

The ECONorthwest analysis shows that in the early 1970s Portland-metro’s wages were similar to those in Seattle, Denver and Minneapolis metros. But since then the metro areas have diverged on average wages. Today Portland-metro wages are 4 percent below the national average for all metropolitan areas, 10 percent below Minneapolis-metro, 13 percent below Denver-metro and 17 percent below Seattle-metro. Currently, Portland-metro wages are more like Cleveland, Pittsburgh and Indianapolis metros than they are like Seattle, Denver, or Minneapolis metros.

"The critical factor you need to pay attention to is the educational level of your population," said Cortright, who compares the percentage of metro-area adults who have college degrees or more. "All of the comparative metros have higher levels of educational attainment than Portland."

And equating Portland with Cleveland? "I don't buy that at all," Cortright said. Cleveland is a bad comparison because the city's population has shrunk by more than half since 1950, he said, and holds a relatively small share of its regional economy.

Cortright can spin the study any way he likes. Invoking the Mistake on the Lake, Shittsburgh, or Indianoplace is intended to shock the audience. After all, this is a debate about economic policy. But falling behind the likes of Seattle, Denver and Minneapolis should be the crux of the discussion. The report indicates that Portland wages were, in 1970, to comparable to those cities with "higher levels of educational attainment". What went wrong?

Seattle, Duy said, has Bill Gates, the aircraft industry and the defense sector. Portland had high-tech manufacturing, which boosted the area's economy from the mid-1980s to the late 1990s.

But tech went bust and many factories moved offshore.

"We didn't have an industry to compensate," Duy said.

Trotting out Seattle for a Portland audience is lot like sticking it to the old guard in Cleveland with stories about Pittsburgh's success. There's a lot of needling going on between adversaries. This isn't an honest look at the difficulties Portland is facing. All I see is bluster and bombast, spelling trouble for the Shangri-La of the Pacific Northwest.

4. Pittsburgh has finally been able to hold a positive net migration, with some data pointing to our increase of young (25-34) people who are highly educated (college degree). Remembering that small businesses provide 85 percent of all jobs nationally, Pittsburgh HAS to ensure the creation of small businesses to ensure our talent remains here, the retention will attract others of like minds and interests.

5. We have the best and brightest people studying at our universities. Students in science and technology are more likely to leave the region after graduation than any other discipline. People who obtain secondary degrees are even more likely to leave the region. Our universities attract diverse populations, which does not mirror SWPA’s population. If we can keep the educated population, our educated workforce will also reflect more diversity. (CORO 2001)

I respectfully disagree. I see attracting talent as a way to ensure the creation of small businesses. Those who migrate are risk-takers, job creators. Retention is a sure way to weaken the local entrepreneurial community. If anything, Pittsburgh is too effective in its quest to discourage people from leaving.

I suggest embracing the geographic mobility of talent. The best and brightest leave every region. What is Pittsburgh doing to leverage that established flow? There are benefits to be had from outmigration as well as inmigration. We should revere those who relocate just as Audrey recommends that we celebrate those who fail and try again. Only then will a robust entrepreneurial culture thrive in Pittsburgh.

Wednesday, December 01, 2010

One reset trend I'm tracking is that of geographic arbitrage. The idea is to get more bang for your big city buck. Introducing the 11 Best Cities for Telecommuters:

In most lists of the best telecommuting cities, the focus is on local technology and the quality of Internet access. But as high-speed broadband and wireless options become more ubiquitous, and with freelancing making traditional workers less profitable, the needs of telecommuters are shifting. For remote workers, it's hard to justify paying a premium to live in a pricey city like New York or Los Angeles, especially when many of the country's second cities offer first-rate values.

Rust Belt cities dominate the list. I think these places represent a new group of winners emerging out of the Great Recession. There are a few usual suspects (e.g. Austin), but a key feature of the surprise cities is the production of talent. Both Silicon Valley and Alley can cost effectively "offshore" operations in Pittsburgh.

Much of these telecommuting opportunities ride on the backs of expatriates. Talent leaves a Rust Belt city and works for the big boys on either coast. As the career path matures, valued workers head for the interior in search of a better quality of life. Firms such as Google are desperate to plug the brain drain and thus facilitate the relocation.

Songwhale maintains corporate and sales offices in San Francisco and Indonesia – the latter a bellwether for future trends – and its technology is developed in Pittsburgh, Minneapolis and Beijing (with China Mobile generating $330 million in revenue per day, notes Aini, a toehold in that country is a must).

The ease with which he is navigating the city's business community is something of a revelation for Aini. "Audrey Russo and the Pittsburgh Tech Council have been terrific. At our first meeting with them, the mayor was at the table. You can be a big fish in a small pond here as opposed to one of fifty interactive media companies coming out of San Francisco. What I love about Pittsburgh is the Midwest mentality, the work ethic. There's not as much entitlement. For a company that's looking to grow, that's key and it's what's rich about this place. Coming from big cities, I can see that. Pittsburghers don't know what they've got."

Pittsburgh is talent rich and inexpensive. The outmigration links are invaluable. It's easy to stand out and make a difference. These are attractive (i.e. not retentive) qualities. It sells better to outsiders than it does to locals. What Pittsburghers think is of little consequence.

"Standing still was a good place to be," Mr. Berube said. Standing still now is not something a city should be doing. "That's the problem." While he said it might take a few years to get a complete view of any region in the post-recession economy, the picture is "not too rosy for Pittsburgh at the moment."

Mr. Berube also had some information that could be considered fighting words in Pittsburgh: Cleveland is doing much better. Cleveland, which was ranked 135th for growth before the recession, rose to 131st during the recession and is now ranked 49th of the 150 international metropolitan economies.

Las Vegas, which was 14th in the world before the recession, is now 146th. "Las Vegas built the most consumption dependent economy in the U.S.," Mr. Berube said.

Cleveland, however, still has a manufacturing base that many cities mostly gave up. It's the cities in the United States that still have a good manufacturing base that are growing because the weakened dollar is driving exports.

In terms of exports, Cleveland is looking down on Pittsburgh. I don't see it that way. The TechBelt sports a diversified portfolio. Trying to compete with Cleveland for manufacturing market share would be a mistake. Pittsburgh needs to focus on emerging clusters such as in entertainment technology.

Northeast Ohio has many eggs in the manufacturing basket. That's fine as long as other US cities don't try to horn in on these industries. Pittsburgh doing so is a tragedy of the commons. Both Northeast Ohio and Southwestern Pennsylvania would lose.

A sluggish recovery has a powerful pull on the Pittsburgh psyche. I hope the region stays the course. Imagine what the TechBelt can do.